22 January 2007
As senior bureaucrats at the ACCC packed their bags for their Christmas holidays, they quietly slipped out a key Telstra network pricing decision that was to have ramifications they clearly failed to envisage.
That decision set a new preposterously low base price for what Telstra's competitors have to pay to provide broadband using Telstra's infrastructure.
For $3.20 a month they can provide broadband anywhere in Australia and in doing so will charge a retail price more than 10 times higher than what they pay Telstra. Out of the paltry $3.20 Telstra receives, it still has to maintain the line, fix any faults and ultimately factor in a build and replacement cost.
Nobody knows how the ACCC came up with the $3.20 price. Perhaps they plucked it out of a hat? Perhaps it was because the bureaucrats minds were on other things - as they headed off to the beach, that they completely forgot their duty to ensure that network access prices should bear some relevance to what it actually costs to build and invest in infrastructure.
Once upon a time, somewhere in the distant past, the regulator was supposed to consider something called the "build-buy equation", or put more fomally, "the efficient use of and investment in infrastructure". That is, when setting prices for accessing networks, it should do so in a way that makes access seekers carefully consider whether they should buy access from someone else, or invest and build in infrastructure of their own.
Some economists even suggest that regulators should always err slightly on the side of setting prices to favour "build' rather than "buy", in order to promote new investment and infrastructure renewal.
The drought in telecommunications infrastructure investment in Australia is testimony to the ACCC's unprincipled failure in setting access prices and the Government's failure to recognise the problem and reign in the rogue regulator.
The new record low access price of $3.20 is essentially the final nail in the coffin when it comes to Telecommunications investment in Australia.
At that price, no company would ever want to invest, and Telstra has no capacity to either going forward.
The market reaction has been swift with companies immediately shelving investment plans and preparing to take up the new piggybacking opportunity opened up by the ACCC. Perhaps that's why as the bureaucrats arrived back in their offices last week they quickly rushed out another media release (www.accc.gov.au) trying to justify their moment of pre-Christmas stupidity.
They excused their mistake with a line about as credible as "the dog ate my homework" - that is "Telstra will lose money at this price, but it can afford to make a loss on this service because it will make up for the loss somewhere else".
Regardless of whether or not that's true, (and Telstra says it's not), it doesn't excuse the regulator from having handed down a key pricing decision which completely ignores its legal duty to ensure access prices reflect the actual cost of providing the service in question.
With modern and efficient telecommunications infrastructure crucial for Australia's future economic prosperity, the ACCC can't be allowed to continue getting away with making decisions that completely undermine investment and allow what is essentially regulated theft of Telstra shareholder's property.
It's time the rogue regulator was reigned in.
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